Effect of Corona Virus in Different Sectors of Nepalese Economy

The Emergence of Pandemic Corona Virus (COVID-19)

According to Wikipedia Coronavirus are a group of related virus that causes diseases in mammal and birds. In humans, coronavirus causes respiratory tract infections that can range from mild to lethal. The first case of coronavirus has confirmed in China on Dec 31, 2019 and outside of China, it was confirmed in Japan, Republic of Korea and Thailand. On Jan 11, 2020, the Chinese authorities have confirmed the first death from the newly recognized virus in China. 

In the USA the first confirmed case of coronavirus was recorded on Jan 20, 2020, and which was spotted in Washington, where a person returned back from the trip to Wuhan had found with the symptom of newly-identified coronavirus. On Jan 23, 2020, for the first time, China has closed-off Wuhan by canceling all the incoming and outgoing related to the city. At now, all over the globe, more than 120 thousand people have died and over two million people have got infected due to the pandemic coronavirus.

Currently, almost all the major countries of the world have been struggling to fight against coronavirus. Global production has stopped for a couple of weeks, the supply chain has broken down, many people are working from home and many others have become unemployed. All the countries whether they are developed, developing, and underdeveloped, facing health as well as the economic crisis at the same time and which could be the most terrific crisis after the great economic depression of the 1930s. 

The very recent report from The International money (IMF) says the world economy is predicted to shrink by 3 percent this year - the most important contraction since the Great Depression of the Nineteen Thirties. The International money says the coronavirus pandemic is probably going to bring Asia's economic growth to zero for the first time in sixty years.

Deadly Coronavirus and its effect in the economy of Nepal

The report has indicated developing nations might have to face the tragic economic crises due to coronavirus anytime after the virus will come into control. Most of the courtiers have been lock downed including China, USA, Japan, Germany, Italy, UK, Spain, India, South Korea, etc. partially or fully and the companies are stopped to produce and many businesses will face 2020 as a horrible year in terms of earnings and many people may have to left out from their jobs. 

Almost all business around the world have taken up loans from financial institutions and with no production and no earnings, the situation could be a major surge in the number of non-performing loans and that may create bankruptcy in major financial institutions in Europe and the USA usualness government will protect them. Countries like the USA are creating different bills or funds to fight against possible adverse economic outcome but all the country that is suffering from the virus cannot do the same and consequences may harsher.

Case of Nepal

On January 13, a 37-year-old Nepali student from The University of Technology in Wuhan, China returned to Nepal. He was hospitalized for a high fever for the past 6 days, and the hospital reported that he was infected with the coronavirus. After 13 days of treatment and isolation, he was fully recovered. With the outbreak of the Coronavirus in January, the government of Nepal took high precautions and started taking various steps to prevent the outbreak. The Government of Nepal began to buy necessary supplies, equipment, and medicines, upgrade the health infrastructure, train the health workers, and spread awareness.

Although the virus is pandemic throughout the world, no new and additional cases have been confirmed for nearly sixty days since the first case appeared in Nepal. A second case was officially reported in Nepal on 23 March, with a 19-year-old lady who returned from France with a coronavirus. According to official data of the Ministry of Health, by April 18, coronavirus has been confirmed in thirty Nepalese as per the regular press conference of the Ministry of Health.

Looking at the statistics within the country, the first case outside the capital city was found in the far west and accordingly far west is at the most risk of spreading coronavirus. Therefore, to prevent the spread of the virus further, both the Central and the state governments are adopting strong and solid steps throughout the state and all over the nation. 

Lockdown in Nepal

Before the Coronavirus cases appeared in Nepal, the virus was spreading globally. In view of the potential risks that could arise from this, the government appealed to all to adopt high alert in the country.  

As the Nepal government had decided to postpone the prescheduled SEE examination just a day earlier than the exams were supposed to begin which was scheduled to start from the 16th of March, people felt a kind of fear. Three days later, all educational institutes across the country were closed, and all scheduled exams and programs postponed with the appeal of the government.

Nepal Police taking action during lockdown/COVID-19

After health authorities detected a second COVID-19 infection on 23rd March, the government of Nepal has confirmed a one-week lockdown of the country from the same date to March 29^th as the precaution of the pandemic coronavirus. With this country has started to adopt high alert, all the  public as well as private transportations except for some emergencies in the country were shut down and all the domestic and international flights were also stopped all over the country. Simultaneously, all government offices, businesses and shops across the country also closed. 

Thus, the lockdown, which started on March 23, has reached the 25^th day today and the government has issued a notice that the lockdown will remain in place until the 27^th of April. The 1,800-kilometre open border with India has already sealed by the government of Nepal.  No vehicles have been allowed except the most urgent; all industries, factories, colleges, schools, businesses, shops, cinema halls, etc. have been closed and with high vigilance, the government has been managing necessary services and relief materials.

Economic Impact of COVID-19 in Nepal

Nepal is among the poorest countries in Asia, with about 50 percent of the children suffering from malnutrition, and with a quarter of the total population living below the poverty line. More than half of all deaths in the country die from non-communicable diseases. And Nepal is in the second-worst place to die from lung disease. Shortages in infrastructure development, lack of quality and easy service, high living expenses, consumption and imports based market behavior, very low productive investment from remittance, underdeveloped and unbalanced banking and financial market, unhealthy competition, corruption, etc. are the mainstay of Nepalese society and the economy.

In a country where most people live on a per capita income of less than $ 1,000 a year, depends heavily on agriculture and tourism, having very low domestic production and productivity, remittance based consumption, the economic impact of prolonged lockdowns can be vicious and economy may contract badly, more than one could expect from an ordinary or cyclic crisis.

Nepal Rastra Bank, Kathmandu

As we are not that much affected by the virus if we compare the number of deaths and infected people but the continuous lockdown in the countries having import and remittance based weak economy will hurt it long-lasting and may push the majority of lower-income-people in the danger of unemployment and poverty. With more than half of youths in foreign employment and in the same countries spreading the virus as a pandemic, the risk of losing their jobs could be another major blow to the Nepalese economy and public life. 

Nepal's economy, badly affected by the devastating earthquake and blockade of India, has faced all the crises and while rising, this global epidemic and the lockdown seem to have put the economy back in critical shape. In the short-run, the effect of a global pandemic in developing countries like Nepal may not be looking that devastating but it will be fatal and catastrophic in the long run. 

The Asian Development Bank’s ‘COVID-19 Economic Impact Assessment Template’ free on lays out the best- and worst-case situations for countries within the region. For Nepal, the bank predicts a loss of up to $322 million).

The effect of Coronavirus in different major sectors of Nepal briefly can be shown as;

Effect on the Tourism and Hospitality Sector

Service sectors like tourism enterprise and hotels measure being hit particularly lengthy. The tourism sector was expected to drive the economic growth of Nepal and contribute greatly to the high growth target of 8.5 % that the government had forecasted for this year, now this contribution from the tourism sector is not possible as the pandemic hits badly particularly during the tourist arrival season. 

The tourism sector provided employment to around 1.5 million people in the country and on average travel and tourism sector contributes more than 7 percent to the GDP of Nepal. It’s a tourist arrival season however there's terribly low occupancy of hotels in major tour hubs like Pokhara, Thamel, Bandipur, and Chitwan. Asian nations India, China are the largest supply of tourist in Nepal followed by the US and now due to this devil, all the bookings and plans have canceled to avoid the possible fears. 

Empty Tourist Destination due to COVID-19

So this sector is one that is facing the chronic and brutal effects of the coronavirus in so many years. According to various reports and statistics, the hotel occupancy in all the major cities of Nepal is currently 20-30 percent and which was 80-90 percent during the same time in the previous year. 

As per the official data of the government, this season, Nepal expects more than 200 climbers from Korea, Japan, and some other western expeditions, and due to COVID-19, all have canceled. This is another blow to the tourism sector of Nepal. 

Due to the outbreak, thousands of individuals within the traveler business can lose their jobs; the govt has not proclaimed any relief program for these staff and their families. Nobody knows how much time the tourism sector could take to come back to its ordinary situation. The effect has seen more deadly and threatening in the courtiers like Nepal.

Effect on Foreign Employment and Remittance

Remittance in Nepal is the major source to finance daily expenditure of the majority of lower-middle-income families and lower-income families. In this sense, foreign employment and inflow of remittance have been working as the major lubricant of the Nepalese economy. It has accounted for about more than 25 percent of the total value of GDP in Nepal every year. 

Due to the remittance income, lifestyle, and living standard of average Nepalese families have increased as more than 80 percent of remittance earning has been used in the consumption. Due to aggressive household consumption, the total import of the county has increased and the gap between imports and export has been increasing year by year. So remittance help to create demand in the economy but due to very less domestic production, it has increased the total import of the country and created more and more dependency. 

The majority of the youth population is in foreign employment and that has reduced the agro and other productive activities in the domestic economy as people of Nepal prefer to go foreign employment rather than working in their own land or we can say due to lack of comparatively better job opportunities in the country. 

As a result, the country has not got the potential amount of output inside its own territory and on the other side, the consumption pattern of the people has dramatically changed for a couple of years to fulfill demand it has to increase the volume of imports. So in Nepal, the Remittance income has created a trap in the economy by creating more dependency on one hand and by reducing domestic production on the other hand.

Right now coronavirus has affected this sector devastatingly. The major courtiers contributing to the inflow of remittance are UAE, Malaysia, Saudi Arabia, Kuwait, etc. and the virus is spreading rapidly in these courtiers too. 

Due to this, all the courtiers now are in lockdown, all the works and operations are stopped and they are forcing the workers to take leave without payment and some official reports are indicating that these countries could send the migrate workers back to their country after the virus will come into control. 

Qatar very recently issued a notice on a ban on employees from different 14 courtiers including Nepal. This could be more horrible news for a country like Nepal where the major source of daily expenditure of families is remittance. So this has added more risk to the government of Nepal. It may push more percentage of people below the poverty line and may skyrocket the unemployment rate in Nepal.

Effect on Manufacturing and Wholesale/Retail Trade Sector

The producing and manufacturing units of Nepal have been highly dependent on China and India as they import various raw materials and factors from these countries. To run the manufacturing sector smoothly, Nepal needs different pieces of machinery, types of equipment, and even operators from China and India. For example, if you have to run a very small business in Nepal, you have to import all the basic and advanced levels of techniques and logistic materials either from China or India. The manufacturing sector has an average contribution to the GDP of Nepal about 5.5 percent.

The wholesale and retail trade in Nepal has also contributed significantly by contributing employment and value addition to the GDP of Nepal. Out of total employment creation in Nepal, this sector has created more than 30 percent, the highest rank in the enterprise based employment creation in Nepal and education sector remains in second in 2018. After agriculture wholesale and retail trade is the second contributing sector to the GDP of Nepal.

Now due to the emergence of COVID-19 the supply chain has broken down, the country is in full lockdown and all the manufacturing and trades are stopped for the last 26 days. As we all know, there is no systematic store and reserve system in Nepal to tackle emergencies and unforeseen issues like what we are facing nowadays. 

To protect the manufacturing sector, trade, commerce, and basic supply and ensuring smooth functioning is an almost impossible task for an irresponsible, corrupt, and volatile government like Nepal. So it is more than sure that a country like Nepal will have to face brutal shortages, price hike, and possible famine, if the government will not do any miracle after the outbreak, it will come into control. We have nothing more than hope for the best on our hands.

Departmental Store With no Supply of Necetissies

Nepal’s manufacturing sector is relying on India and China and with disturbances in the supply chain of both of the countries could hurt national output more badly. We know that our government does not have the capacity to import from any third country apart from China and India to run the trade, commerce and manufacturing units smoothly so that all the Nepalese will have ordinary life as it was before the outbreak. 

As we already face high shortage of regularly usable commodities in the market, it will surely create inflation, make poor people more and more poor and forced more portion of people to live the chronic life in near future if the government will not able to run proper financial plans and policies.

Effect on the Infrastructural Sector and Pride Projects

Most of the infrastructure and pride project of Nepal will get delay due to COVID-19. We see that the major factors of production like labor, materials, machinery, equipment, etc. in Nepal all come from China and India. We have a very serious problem in our infrastructural sector that we don’t have highly skilled personnel that we can employ them to run the stopped work in our own infrastructure development. 

The majority of the infrastructural projects of Nepal have been constructing by Chinese companies and they use their own employees in the projects from lower levels to high levels. Now due to the coronavirus, it threatens to delay completion of many infrastructures like Pokhara International Airport, Gautam Buddha International Airport, and Melamchi Water Project etc. and mainly the affecting factor will be the absence of Chinese employees. 

We will have an ironic situation very soon that we have to stop all the mega projects due to the absence of Chinese personnel. The start of the outbreak in January coincides with the New Year of China and due to these all the ongoing projects of Nepal have to face more crises. Our government has no capacity to run these all projects within time rather it may be a good source of corruption for the concerned ministry and authorities. There are increasing uncertainty and the possibility of facing worse crises in this sector too.

Effect on Banking and Financial Sector

This is one of the most significant sectors in capitalistic and industrial economies and as the world is struggling with the pandemic, this sector is the most serious sector to face the crisis in the major economies like the USA, China, Italy, Spain, Germany, and India etc. One thing is fully sure that the world economy is going through a recession and now the question is how hard and how long it will be. 

Human lives are more important than anything and to protect the human almost all the courtiers are now in lockdown and it is an excellent idea to be saved from the outbreak. But what happens to the health of the financial sector and banking sector and how far and deep it would be. I cannot say an easy and simple answer, but we can observe, predict, and prepare ourselves to face the coming global recession.

Now looking at the impact, it all depends on how long this lockdown will be. The financial market and financial system are the lifeblood for economic growth, especially for advanced and industrial economies. For the businesses and for the individuals as well, cash and liquidity are the most important right now and banks and financial institutions have to play a critical role with the direction and order of the central bank. 

Most of the central banks are adopting expansionary monetary and fiscal policies to meet the minimum credit demand line of the businesses and so that they could run smoothly. Bank rate is another important tool that the central bank has to play with. Household sectors could lose many jobs; they don’t have better cash management and if the situation goes continuously then in the country like Nepal, for sure households may face famine and we know that our government is not going to send the direct cash to our homes as we are living in the home without any jobs. 

So there may be no deposits in the BFIs and at the same time, they have to lend more money to the market. It could be both demand and supply shock at the same time and so central bank does have the critical duty, first to make available liquidity for running businesses and getting food for households and then make it balance to be recovered.

In our case, if we compare the lending of BFIs with the previous year it has increased by a high percentage. It has increased by more than 100 percent in hotel and restaurant sectors and in total booked loans by around 60 percent.  

Last year the proportion of NPA was 1.7 for commercial banks and 1.21 for development banks. Due to the effect of the health-driven economic crisis the profitability of BFIs surely will go down and non-performing loans will increase.  BFIs have to circulate their retained earnings. As the government does not have enough resources and they have to ensure the purchasing power of lower-middle-income classes by considering the budgetary constraint and fiscal deficits. Protecting foreign investment is also another challenge for the government.

Psychological Effect

The concern of COVID-19 has also created several physical impacts as well. The nervousness has increased along with the spreading the nature of outbreak everywhere. Meanwhile,  the superpower of the world like the USA, China, and other European giants are still don’t know the way to overcome,  has created more anxiety all over the world about the virus. 

With globalization and free-market economic system, people are becoming more scared about possible happens in the days to come.  The people living abroad are trying their best to come back to their home and the situations are not looking so good and so fast. The concern of COVID-19 has crossed borders with individuals doing no matter what it takes to remain safe. Thus the mental pressure has also increased for all the people in all the nations due to the deadly epidemic.

Awareness hoardings to avoid social contacts due to COVID-19

The government and Nepal Rastra Bank will have a major role to regulate and ensure a guarantee to the financial sector to operate at in optimum level and manage all the other sectors of the economy to fight against the crises invited by the global endemic.